Donald Trump’s solar tariffs are a case of when the levy brakes

The cost of a solar project involves many other elements, such as inverters to make the current useful, design and construction, permitting and other elements. Photo: Bloomberg

New York: It is perhaps fitting that President Donald Trump’s salvo of tariffs on solar-power equipment was unleashed in a press release dropped late on Monday and sporting a headline that actually led with “large residential washing machines.”

Why? Because, digging into the impact, the tariffs help to demonstrate one thing: Solar modules— blocks of cells that are put together to make panels—might seem space-age, but, cost-wise, they’re a little more mundane. That, of course, is the whole point.

China’s breathtaking expansion in making them has been the primary reason their price has declined by 80% since 2010, crushing margins everywhere and helping to push many a manufacturer elsewhere into bankruptcy. Yet the tariffs Trump has imposed look unlikely to encourage solar-equipment factories to start sprouting across the US.

Duties on imported modules from non-exempt countries start at 30% in year one and fall by 5 percentage points each year until the final level of 15%.

On the face of it, therefore, if the tariffs kicked in this year, they would add about 10 cents to the cost, taking it to 43 cents per watt.

Notice this would still be lower than in 2016—which also happened to be the biggest year ever for US solar installations, at 13.6 gigawatts. That year’s activity was given a boost by a different arm of the government, as project developers rushed to start them ahead of a feared abolition of tax credits by Congress, which ultimately didn’t happen. Still, modules costing almost 50 cents a watt clearly were not a barrier.

Another thing to bear in mind is that the cost of a solar project involves many other elements, such as inverters to make the current useful, design and construction, permitting and other elements.

The different levels there do mean, however, that the tariffs won’t have the same effect on each type of project. Using BNEF’s projections, the cost of a residential installation would rise by about 3% on average over the four years of the duties, while commercial and industrial costs would go up by 4.4%. Utility-scale projects would see a jump of almost 9%.

To be clear, in an industry as competitive as this, anything that messes with the continued decline in costs will deter some sales. Given that manufacturing accounts for only about 15% of the US solar-power workforce, this seems not super-helpful for job creation.

However, it is tough to see how these tariffs stop the industry in its tracks, especially as the impending sunset of the investment tax credit offers an incentive for developers to not delay beyond this decade.

It is possible that, in disrupting sales and supply chains, the tariffs throw a structural wrench into continued declines in unit costs, not just temporary ones. And the door to further tit-for-tat trade-war escalations has been opened a bit wider—with consequences that could spread way beyond solar power, energy, and even washing machines. Bloomberg Gadfly